Central Bank: Studying moderately narrowing the width of the interest rate corridor to send a clearer signal of interest rate regulation targets
2024-08-10
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On August 9, the People's Bank of China released the "China Monetary Policy Implementation Report for the Second Quarter of 2024", which detailed the highly-concerned interest rate issue through two columns, focusing on interest rate formation and regulation. On the one hand, it sorted out the evolution of the market-oriented reform of deposit and lending interest rates, and on the other hand, it detailed some recent reform measures of the central bank to improve the interest rate regulation framework.
In a column entitled "Establishing and improving a deposit and loan interest rate formation mechanism determined by market supply and demand", the central bank pointed out that at present, deposit and loan interest rates have basically achieved market-based pricing. Deposit interest rates have been mainly adjusted independently by financial institutions, supplemented by industry self-discipline to ensure rational and orderly competition. Loan interest rates are determined independently by financial institutions and form the loan market quotation rate (LPR) as the main pricing benchmark for floating rate loans. Among them, on May 17, 2024, in order to adapt to the new situation of major changes in the supply and demand relationship in my country's real estate market, the central bank abolished the national level personal housing loan interest rate floor, and most cities have abolished the local first and second set of housing loan interest rate floor, and financial institutions can independently determine the personal housing loan interest rate for customers. So far, commercial loan interest rates have been market-based, and financial institutions can independently determine deposit and loan interest rates according to business needs and maintain a reasonable deposit and loan interest rate spread.
The central bank said in this column that it will continue to deepen the interest rate marketization reform, eliminate unsuitable restrictive competition policies, urge and guide financial institutions to improve their market-based pricing capabilities, and better play the role of market mechanisms. At the same time, it will implement and improve the requirements of the macro-control system, improve the market-based interest rate control mechanism, better play the role of the market interest rate pricing self-discipline mechanism, standardize market competition behavior, and maintain market order.
In a column titled "Further improve the market-oriented interest rate regulation mechanism", the central bank stated that on the basis of the basically established interest rate formation, regulation and transmission mechanism, it will clarify the central bank's main policy interest rates, unclog the monetary policy transmission channels, and continue to deepen interest rate marketization reforms.
Since July, the central bank has adjusted the bidding method for open market operations and strengthened the main policy interest rate attribute of the 7-day repurchase operation rate in the open market. At the same time, it has increased temporary positive and reverse repurchase operations in the afternoon to guide market interest rates to better operate smoothly around the policy interest rate center. In addition, the loan market benchmark rate (LPR) has been improved to straighten out the interest rate transmission relationship from short to long. While clarifying the 7-day reverse repurchase operation rate as the main policy interest rate, the medium-term policy interest rate is gradually fading out.
The central bank said that in the next step, it will always maintain the stability of monetary policy, further improve the market-oriented interest rate formation, regulation and transmission mechanism, enhance the authority of policy interest rates, study the appropriate narrowing of the interest rate corridor, and send a clearer interest rate regulation target signal to the market. At the same time, it will continue to reform and improve the LPR, focus on improving the quality of LPR quotations, better play the role of the interest rate self-discipline mechanism, maintain a rational and orderly competitive order, and smooth the interest rate transmission channel, so as to create a good monetary and financial environment for economic recovery and high-quality development.
Industry experts pointed out that the two interest rate columns are intrinsically linked, with the two columns approaching from the perspectives of formation and regulation. The People's Bank of China continues to deepen the market-oriented reform of interest rates, and the market plays an increasingly important role in the formation of interest rates, and the independent pricing ability of financial institutions has been significantly improved. At the same time, industry self-discipline is used to maintain the market competition order. The People's Bank of China steadily and prudently promotes the improvement of the interest rate formation and regulation mechanism, which reflects the requirements of deepening reform that can both "let it go" and "control it".
The Paper reporter Chen Yueshi
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